Nigerian Banks’ Bad Loans To Rise After Forbearance Ends, Fitch Warns

Fitch Ratings has raised concerns that the expiry of longstanding systemwide forbearance by mid-2025 will push up impaired loan ratios in Nigeria’s banking sector, exerting fresh pressure on capital adequacy.

In its latest commentary on Nigerian banks, the international rating agency said the expiry of longstanding systemwide forbearance at the end of 1h25 will lead to notably higher impaired loans ratios and pressure on total capital adequacy ratios.

According to Fitch, the vast majority of Nigerian banks are expected to exit longstanding forbearance by end-2025, “even though the expiry of forbearance will lead to some large Stage 2 loans being reclassified as impaired, Fitch Ratings says in a new peer credit analysis on the country’s major banks.

“The banks’ preparedness is supported by the restructuring of many Stage 2 loans, capital raisings across the banking sector spurred by a large increase in paid-in capital requirements, and increased loss-absorption capacity resulting from improved net interest margins.

“This will help counteract increased loan impairment charges and prudential provisions resulting from the expiry of forbearance and the associated pressure on total capital adequacy ratios across the banking sector.

“Certain banks will be allowed to continue operating under forbearance, subject to certain penalties, including the inability to pay dividends.”

Fitch also noted in its commentary that the naira devaluation has been positive for the banking sector’s foreign-currency liquidity, leading to higher foreign exchange market turnover. Eurobonds totalling $2.2 billion mature or are callable by the end of 2026. The banks generally have sufficient liquidity to meet their Eurobond obligations without needing to refinance.

It also noted that the industry remains weighed down by challenging regulatory demands, while inflationary pressures and high interest rates are expected to persist soon. “Nigerian banking sector remains subject to highly burdensome regulations, inflation and interest rates are forecast to remain high in the near term.”